From Morningstar:

In 2023, UK small caps and mid-cap stocks outperformed the overall market, but only one fund in the EAA fund UK small-cap equity category managed to beat the index. The growth investing landscape has been challenged by increasing interest rates and inflation, impacting valuations and causing outflows from active managers in small-cap funds.

The winning funds of the last three years were value-oriented, with the VT Cape Wrath Focus fund being the top performer in 2023. This fund, managed by Adam Rackley, focuses on situations where investors overreact to events, with a high value bias and emphasis on company fundamentals.

Some funds like FTF Martin Currie UK Smaller Companies and Abrdn UK Smaller Companies have been buying and selling stocks strategically, sticking to their style tilts. FTF Martin Currie’s fund manager entered 2023 overweight in growth names but transitioned to more undervalued cyclical areas like Marshalls and FDM Group. Abrdn UK Smaller Companies focuses on durable growth prospects and has seen success with new purchases like Chemring and Premier Foods.

Artemis UK Smaller Companies fund, also silver-rated, focuses on companies with strong business franchises at reasonable valuations. The managers have been buying derated growth companies like GB Group and Gamma Communications after significant falls, emphasizing buying growth companies at the right price. Trimming winners like Computacenter and adding new positions in Hilton Foods and JTC have contributed to their balanced portfolio.

Overall, the small- and mid-cap fund landscape in the UK has faced challenges from interest rate hikes, inflation, and outflows, leading to shifts in investment strategies towards value-oriented approaches and carefully selected growth stocks at attractive valuations.



Read more at Morningstar: What’s Going on With UK Small-Cap Funds?